Can MyEG bounce back?

MyEG Services Bhd is working its way to regain investors’ confidence and to reaffirm the company’s business momentum.

Aside from its existing works, it is believed that the company is also currently working on several new projects that are related to government services.

Examples of the new projects include a reporting system for the yet-to-be-launched sales and services tax and a new module for foreign workers.

These are on top of the group’s increasing foreign ventures, which were initiated two to three years ago and are starting to show traction.

In a reply to StarBizWeek, MyEG says it aspires to be “a leading international player”.

“We are leveraging on what we have done locally and replicating it in different markets. Hence, we believe we have a competitive edge in these foreign markets,” says the company.

Simply put, MyEG is exploring potential means to strengthen its financials and to prove its mettle to the investors, as it tries to reverse its share price fall over the last three months.

However, the question is, will the company succeed in its pursuit to become the darling of investors yet again?

For those who know MyEG well, it is a no brainer that political connections have been a key factor in fuelling the company’s performance over the years.

Having started out as a government concessionaire and later evolved into a provider of commercial services, MyEG and its single largest shareholder, billionnaire investor Wong Thean Soon (pic) are widely known in the market for their close links to the previous Barisan Nasional government.

While government contracts contribute only about 20% to its top line, MyEG has marked its presence as Malaysia’s leading government services provider since its founding in 2000, covering many services including road tax renewal, foreign worker permit renewal, summons checking and zakat payments.

Among others, the company also ran a monitoring programme for the goods and services tax, which the newly-minted Government terminated on June 1.

Besides, it handles over 50% of the car road tax renewals in Malaysia and almost all the foreign workers’ working permit renewal services.

MyEG’s financial performance in the yesteryears have been commendable as a result of its diversified list of contracts and projects.

Over the last five years to 2017, the company has registered a compounded annual growth rate of more than 45% profit-wise, and close to 37% on its revenue.

Share price-wise, the stock was the darling of investors, with its market capitalisation having grown from just over RM100mil since its listing in 2007 to billions now.

In fact, MyEG has been largely on an uptrend since early 2013 and hit its record-high of 2.90 on March 30 this year.

Just as when the company’s outlook appeared promising over the longer term, Malaysia’s unprecedented change in government has cast doubts on MyEG’s recurring income stream from government-related services contracts, moving forward.

Following the country’s 14th general election (GE14) on May 9, Pakatan Harapan rose to power at the federal level, toppling what used to be the world’s longest single party rule.

In the eyes of investors, the close ties between MyEG and the federal government have been severed – at least for now.

As anticipated, in the first day of trading after GE14 (May 14), MyEG was among the politically-linked stocks that fell under heavy selling pressure amid volatile trading on Bursa Malaysia.

The counter hit limit-down on May 14, plunging by 77 sen or 29.84% to RM1.81.

For context, on May 8, MyEG’s shares closed at RM2.58 and was valued at over 30 times its forward earnings.

The stock has continued to slide since then, amid foreign fund withdrawal from the market and unexciting stock exchange performance. On June 4, MyEG hit a multi-year low of 69 sen.

However, over the last two weeks, in line with the improvement in overall market sentiment, MyEG’s share price has risen to RM1.22 and lifted the market capitalisation to RM4.33bil.

Prospects moving forward

While MyEG only derives about 20% of its revenue from government contracts, the contribution remains substantial.

With the new Government in place, the government services scene may get more competitive as the federal administration could likely open up the market, leaving MyEG to compete with other players for its existing services.

These potential competitors may include established players such as Datasonic Bhd and Prestariang Bhd, or even lesser-known yet upcoming companies such as NOVA MSC BHD.

However, MyEG remains unperturbed and says that the government services space has always been competitive, with many solutions on offer from players of varying sizes.

“Nevertheless, MyEG’s proven track record, operating expertise and economies of scale have enabled the company to deliver services efficiently and at low cost, thus leading to our selection for the implementation of critical online government services.

“Moving forward, we expect that our strengths as an innovative market leader would help us maintain the full confidence of the government of the day to be a reliable service provider,” it says.

When asked to comment on the perception among investors that MyEG secured most of its existing government contracts via direct negotiation rather than open tender, the company says such perception has no basis.

“The government concessions that MyEG have at present were awarded after an open tender back when the Multimedia Super Corridor was first introduced in the year 2000. Hence, we are accustomed to participating in and winning open tenders,” the company adds.

Aside from competition concerns in the government services segment, potential margin compression could also be a key issue to be dealt by MyEG.

The new Government’s objective to cut expenditures and streamline the national fiscal position, may force services providers including MyEG to undertake government contracts at a lower cost as well as reduced margins.

Rising competition from new players who are willing to offer services at a lower-than-market average, could also compel MyEG to accept lower profit margin on its services in order to retain its existing government contracts.

MyEG says it aims to provide government services at the most competitive rates possible.

“Accordingly, rates for concession services do not materially affect the overall profit margin of the company as the margin is actually driven mainly by the performance of our commercial services.

“MyEG’s margins are mainly driven by the performance of our commercial services, hence the impact, if any, of any margin compression on our government concession-related businesses will be minimal,” states the company.

Moving forward, MyEG remains on the lookout for different areas of growth opportunities, both domestically as well as overseas.

“We are always open to synergistic acquisitions, but have not identified anything interesting at present.

“One area which we are very excited about is Augmented and Virtual Reality (AR/VR), and so, we are starting to ramp up our investment in this segment. At MyEG, we believe AR/VR is truly disruptive and over time will totally change how everyone will experience life,” it says.